Mansker v. Farmers Ins. Co. of Wash., No. C10-0511JLR, 2011 WL 1327111 (WD. Wash. April 6, 2011).

In this case, a District Court in Washington held that subsequent change of citizenship or elimination of minimal diversity does not oust jurisdiction in a suit properly begun in federal court.

The plaintiff, on behalf of himself and as a putative class representative, filed a class action suit against Farmers Insurance Company of Washington (“FICO WA”), as well as numerous other insurance entities seeking to recover the alleged diminution in value that he claimed his vehicle sustained when it was involved in a wreck and repaired pursuant to the uninsured motorist provisions of his policy.

After the exchange of discovery, the District Court granted the defendants’ motion, dismissing all defendants, except for FICO WA, on grounds that the plaintiff lacked Article III standing to assert any claims against these defendants, and dismissing the plaintiff’s mischaracterization claim against all defendants also on grounds of lack of Article III standing.

Two weeks following the Court’s order, the plaintiff filed a motion under Fed. R. Civ. P. 41(a)(2) for voluntary dismissal of his complaint without prejudice, asserting that, as a result of the Court’s dismissal of all foreign defendants, the Court had deprived itself of subject matter jurisdiction. The plaintiff argued that the matter now fell within the “local controversy” exception to federal jurisdiction under CAFA, 28 U.S.C. §1332(d)(4). The plaintiff also indicated he intended to re-file and amend his present lawsuit in Washington state court following a dismissal of his action in the District Court.

The plaintiff originally filed this case directly in the District Court under CAFA. Because the Court dismissed all foreign defendants, leaving FICO WA as the sole remaining defendant, the plaintiff contended that the case now fell within the “local controversy” exception to CAFA diversity jurisdiction, and thus the Court lacked subject matter jurisdiction. The plaintiff asserted that now all the parties to the suit were Washington citizens and that no more than a Washington-only class was available for certification. 

Although the Court agreed with the plaintiff, nevertheless, it concluded that it was not deprived of subject matter jurisdiction over this matter, as it was initially properly filed under CAFA.

To support its conclusion, the Court relied on a Ninth Circuit recent decision, United Steel v. Shell Oil Co., 602 F.3d 1087, 1091-92 (9th Cir. 2010), which addressing a similar issue upon a case removed to the federal court under CAFA, held that post-filing developments do not defeat jurisdiction if jurisdiction was properly invoked as of the time of filing. (Editors’ Note: See the CAFA Law Blog analysis of United Steel posted on August 13, 2010).

In In re Intel Laptop Battery Litigation, No. C09-02889 JW, 2010 WL 5173930, at *5-*6 (N.D. Cal. Dec. 15, 2010), the district court applied the foregoing rationale of United Steel, to a case that was not removed, but rather originally filed in federal district court under CAFA. Based on the rationale of United Steel, the Intel Laptop court concluded that it did not lose subject matter jurisdiction where plaintiffs had properly filed the case in federal court under CAFA, but then ultimately withdrew their motion for class certification. The Court accordingly found that the Intel Laptop court’s rationale and application of United Steel to be persuasive here as well.

In addition to that, the Court found the legislative history of CAFA instructive here. The Judicial Committee Report on CAFA, S. Rep. No. 109-14 (1st Sess. 2005), reprinted in 2005 U.S.C.C.A.N. 3, 2005 WL 627977, at *70, states that while questions regarding events occurring after a complaint is filed or removed to federal court will, of course, arise under CAFA, those same (or, at least, very similar) questions arise in current practice on jurisdictional issues.  Well established law exists to resolve these questions, and CAFA does not change — or even complicate — the answers to these questions. In short, the “rules of the road” on such issues are already established, and CAFA does not change them. (Editors’ Note: Hip, hip, hooray for another judge looking at the legislative history of CAFA).

Under existing law, “diversity” of citizenship between the parties must exist both at the time a complaint is filed and at the time a complaint is removed to federal court. For this reason, the federal court would generally only need to measure the diversity of the parties at the outset of the litigation; thus, no court would be required to engage in a residency play-by-play after the time the complaint was filed. Id.

Current law is also clear that, once a complaint is properly removed to federal court, the federal court’s jurisdiction cannot be “ousted” by later events. Thus, for example, changes in the amount in controversy after the complaint has been removed or if minimal diversity was eliminated would not subject a lawsuit to be remanded to state court. Minimal diversity would be lost if, for example, the federal court dismissed the claims of out-of-state plaintiffs, leaving only the claims of in-state plaintiffs against an in-state defendant intact. It uniformly has been held that in a suit properly begun in federal court the change of citizenship does not oust jurisdiction. Id.

Thus, the Court observed that the legislative history specifically addresses an order on a motion to dismiss which leaves only the claims of in-state plaintiffs against in-state defendants, and concludes that “in a suit properly begun in federal court a change of citizenship does not oust the district court of its jurisdiction.” Id. Accordingly, the Court concluded that its order dismissing foreign defendants did not oust it of subject matter jurisdiction over this litigation.

Although the Court held that the plaintiff’s motion for voluntary dismissal based upon lack of subject-matter jurisdiction was incorrect, it granted in part the plaintiff’s motion on other grounds.